New York’s Medicaid waiver windfall comes with a catch

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Andrew Cuomo. (AP Photo/Mike Groll)
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Dan Goldberg

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Last month, when Governor Andrew Cuomo celebrated a deal with the federal government that would provide $8 billion to New York hospitals, he boasted about how that money could be reinvested in the state to transform health care for the 21st century.

“We will finally be able use the billions in savings we generated by reforming the state’s Medicaid system to protect and improve health care services for millions of New Yorkers,” Cuomo said, when the deal—in which the Obama administration granted a waiver to the state allowing it to access Medicaid money for use by its hospitals—was finalized.

It was a big win for the governor, because it stood to be a big deal for medical institutions across the state. For some of those institutions, like the financially troubled Interfaith Medical Center in Brooklyn, it was nothing less than a lifeline.

But the celebration may have been premature.

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By convincing the federal government to grant the waiver, what Cuomo had done was to secure a matching fund, not a grant.

And that in turn means the money is no sure thing, particularly if some of the state’s most financially challenged medical institutions—its public hospital systems—don’t rise to the occasion.

The matching fund, the result of a deal forged over months of often-contentious negotiations between the state and the Obama administration, requires Medicaid providers across the state to meet predetermined metrics—aimed at decreasing in-patient hospitalizations by 25 percent over five years—if they are to receive their full share.

Moreover, New York’s Medicaid providers are now all in it together, with all the players more heavily invested than ever in the performance of the state’s five public health systems. Those systems—the New York City Health and Hospitals Corporation, SUNY, Westchester Medical Center, Nassau University Medical Center and Erie County Medical Center—will play an outsized role in determining how, and whether New York actually receives anything close to the $8 billion.

And there’s another thing: Because this is a matching fund, the only way the state can access the cash is if it puts up $8 billion of its own money.

The state’s waiver plan calls for the majority of the state’s match, $6 billion, to come from Intergovernmental Transfers, which is a fancy way of saying the money will come from public entities other than the state.

The Cuomo administration is requiring that New York’s five public hospitals provide $6 billion over five years. It has not yet been decided what portion each system will pay, but it is safe to assume that SUNY and H.H.C. will bear the brunt, because of their relative size.

SUNY can, and most likely will, draw on the millions of dollars from tuition it receives.

But H.H.C. has a much more acute cash-flow problem. Most days the city’s hospital system has only a few days’ worth of cash on hand.

Here’s how the state plans to manage that:

H.H.C., by far the largest public hospital system in the state, receives Medicare and Medicaid payments from the federal government, often in large chunks. There are also certain times of the year when H.H.C. must make large disbursements for expenses such as its pension fund or for insurance.

But there is often a several-week window between those periods during which H.H.C. is relatively flush.

The state will monitor the corporation’s bank account and pull the IGT funding during one of the flush periods. That unlocks the federal match. The idea is that H.H.C. will be repaid quickly from the waiver funds it earns and the state can keep the match to provide other private hospitals throughout the state with their share of waiver funding.

According to state officials, an IGT payment will only be made after the state has awarded at least an equal amount from the waiver funds.

That’s good for the public hospitals, because it eliminates the chance that they could put more into the pot than they are eligible to withdraw.

But what it also means is that if the public hospitals don’t perform well, or if they fail to meet the goals, they won’t put up the money to unlock the federal funds.

SUNY’s failure, in other words, could be Interfaith’s loss.

State Medicaid director Jason Helgerson, who is now overseeing and engineering one of the most ambitious Medicaid programs in the state’s history, explained that for the first few years, the milestones are largely process-related, marking such things as reporting and work plans. The more “transformative” milestones required by the federal government kick in during the third year. But that’s also where the bulk of the money comes in.

“That’s not easy, but it’s key for folks to understand you have to hit performance metrics,” Helgerson said. “There is no payment for effort. This is payments based on performance, a very different dynamic than you’ve seen in the past.”

There will be a report card, Helgerson explained, that grades the state as a whole for the performance of its parts.

“If the state of New York fails in that report card, there is a direct implication for all of the performing provider systems,” Helgerson said. “What we’re going to be required to do is reduce everyone’s payments. … Even if you as an individual system hit all your performance standards you could still be subject to less funding because of statewide performance. What that means is what happens in the Bronx matters in Binghamton and what happens in Binghamton matters in Albany or the North Country or anywhere else in the state.”

The spokesman for one major private-hospital group suggested that the fates of the state’s hospitals are linked together anyway, even if the waiver-money formulation places new stress on that interdependency.

“While we are certainly cognizant of the potential financial downside to this approach, there’s a general recognition that this is the right thing to do,” said Terence Lynam, a spokesman for North Shore-LIJ. “If we had our say, would we have done it differently? Of course. But in the end, we think public hospitals will embrace changes in the delivery of care that we and other providers are implementing.

“We do think it’s important that health systems support public hospitals to help them become successful, which is what we did with Nassau University Medical Center, which is a North Shore-LIJ affiliate who we have worked with closely now for about eight years,” Lynam said. “If public hospitals fail, the reality is other hospitals like ours would have a hard time filling the gap. It’s imperative that we keep them as healthy as possible.”

This article appeared in the June edition of Capital magazine.

NOTE: Due to an editor's production error, a draft version of this piece was accidentally published online previously. This article has been updated to the version that actually appears in the magazine.